Financial Post, Weekly edition, July 7, 1979

Sense of urgency lacking at top

Nation's Business Editorial

Incredibly, the Tokyo economic summit narrowly avoided being a disastrous
failure. The main decision, agreement among the seven participants to limit oil imports,
was reached a scant half hour before the end of the final session. As Wellington said of
Waterloo, it was a close run thing.

Entirely too close. The agreement to make a serious effort to keep oil imports
below stated ceilings may go some way toward convincing the Opec oil custodians that
the industrialized nations want to reduce consumption, and thereby help stretch out the
Opec members' precious reserves. But there was no sense of urgency at the summit, no
clear sign that the big powers have really grasped the appalling consequences for the
world economy of continued oil-price escalations and production cutbacks.

Agreeing to cut consumption is worth something, although the summit
communiqué leaves room for exceptions "to take account of special needs generated by
growth." And the summit leaders did agree to set up a register of international oil
transactions as a first step toward slowing the sale of oil on the spot market, where prices
have far exceeded even the new Opec maximum of $23.50 a barrel.

But more than tentative first steps are needed. Concerning the spot market, the
seven said they "will consider the feasibility of requiring that at the time of unloading
crude oil cargoes, documents be presented indicating the purchase price certified by the
producer country." Spot market prices of $40 a barrel and more offer too tempting a
target for Opec when setting its "official" price. The time is past for "considering" a
prohibition on imports of oil sold at prices far above the posted figure.

In the vital areas of conservation and new technology for alternate energy sources,
the seven have wasted more time by creating unneeded new bureaucracies. Energy-saving
efforts will be "monitored by a high-level group of national representatives, the European
Community Commission, and the Organization for Economic Co-operation and
Development (OECD)." The search for alternate energy sources will be reviewed by "an
international technology group linked to the OECD, the International Energy Agency
(IEA) and other appropriate international organizations." This superbody will review
individual country action and report on the need for international collaboration, including
financing.

Why not merely broaden the authority of the IEA? This group, an arm of
OECD, has already done extensive surveys of the conservation efforts in 19 OECD
countries. It has initiated several projects in solar energy development, coal technology,
enhanced recovery processes for oil, and geothermal energy.

There is no time to fuss around setting up new agencies. Nor, surely, is there need
for study about whether or not collaborative effort is required to develop alternate energy
sources. All members of IEA should pool their knowledge and resources in a crash
program designed to achieve more efficient extraction of oil from oil sands, develop the
energy potential of biomass and the sun, and improve the utilization of coal.

The seven, and indeed all OECD members, should assign top energy experts to an
IEA council to organize such an effort. Each country should divert a portion of its energy
budget to an IEA-administered fund to get a program going.

The seven were also disappointingly hesitant about pressing home to Opec the
frightening international economic consequences of soaring oil prices. The summit leaders
said they "remain ready to examine with oil-producing countries how to define supply and
demand prospects on the world oil market." Remain ready? Do the seven really expect the
oil sheiks to come to them? The industrialized nations - it will have to be the OECD
now, since the big seven won't meet again until next year in Venice - must set out some
blunt economic truths to Opec before the oil cartel next meets in September (when
another price increase is likely).

Opec needs a face-to-face explanation of the havoc wrought by its price increases.
If the oil-producing countries' plan is to so cripple the industrial economies that they can
no longer afford to buy oil, they are going about it in precisely the right way.